Feds predicted to raise interest rates, likely to impact ports and real estate

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Posted at 9:14 AM, May 04, 2022
and last updated 2022-05-04 09:14:49-04

The Federal Reserve is on track to raise interest rates by half a percentage point on Wednesday afternoon, marking the highest interest-rate hike in over two decades.

This comes as the Feds are trying to tackle inflation, but some economists say they waited too long and the United States may be heading towards a recession.

"The headwinds facing the economy are growing," said Dr. Robert McNabb, an economist at Old Dominion University. "And the Federal Reserve is behind the curve in raising interest rates."

Dr. McNabb says the Federal Reserve is now trying to play catch up, using a 'soft landing' approach, which includes a periodic slowdown in economic growth and avoids recession. But, he adds that raising rates too fast could spiral the country into a recession.

"So how do banks combat central inflation? They raise interest rates," he explained. "But then they slow economic activity, and you risk recession that way. So it's a very delicate tight rope."

Dr. McNabb says this will impact the local real estate market.

He predicts mortgage rates will go up and possibly hit 6% or higher by the fall.

This means the Hampton Roads real estate market will see refinancing slow, buying slow, and houses will likely spend more days on the market.

Hampton Roads may also see decreased activity at the ports, as other countries fight similar inflation issues while recovering from the COVID-19 pandemic.

"If other banks around the world also increase rates, and global growth slows, then we'll see that feed through the port of Virginia through smaller cargo traffic. The whole thing everyone is trying to do right now is apply a little brake pressure without fully stopping the economy," McNabb explained.

While McNabb and other Wall Street economists predict a recession happening in the early months of 2023, Fed Chairman Jerome Powell says the US has tried a soft-landing approach before and it does not guarantee a recession.